Compensation for Value of Signal

Discussion Paper on the CRTC Illustration

Industry Analysis
Policy Development and Research Sector
May 14, 2009

Background

On 27 April 2009 at the Public Hearing to consider the licence renewals for private conventional television stations, the Commission placed on the public record a document illustrating the potential impact of compensation for the distribution of conventional television signals. On 6 May 2009, an announcement was made that a Technical Working Group on the Compensation for Value of Signal would be established. This Working Group is tasked to examine the definitions, assumptions and methodology used in preparing the illustration tabled at the public hearing.

This paper uses the original numerical examples filed at the Public Hearing and provides information on the methodology, definitions and assumptions used in creating the original illustration.

Compensation Structure used in the Public Hearing Illustration

The Commission considered the financial relationship between the conventional television signals being carried by Broadcast Distribution Undertakings (BDUs), the revenue derived from the carriage of these signals, and the remuneration to the providers of conventional television signals. The basis for this consideration can be found in Sections 17 of the Broadcast Distribution Regulations. In the illustration, the remuneration considers the breadth of the broadcast of conventional television signals as measured by the number of basic cable subscribers that receive conventional television stations’ signals.

Methodology used to determine signals carried and eligible subscribers

For the purpose of defining which stations are local as per Section 17 of the Broadcast Distribution Regulations, the Grade A contour of over the air originating conventional television signals with broadcasting distribution undertaking cable service area boundaries was compared. Where the two intersect, the signal was deemed to be eligible for mandatory carriage on basic. It is important to note that for the purposes of the numerical illustration provided in the impact analysis educational services, certain rebroadcasts and the aboriginal channel APTN were not included. The ultimate determination of the parameters used to establish a compensation value for conventional signals will provide further precision with respect to these exclusions.

An illustration of compensation for the carriage of conventional television signals

Using the aforementioned structure, the following illustration of compensation for the value of conventional television signals carried by BDUs was presented at the public hearing. The resulting chart estimating the distribution based on a $0.50 per subscriber was tabled for consideration. Please refer to the definitions that follow.

Definitions used in the preparation of the illustration

The following are definitions of the columns used in the illustration tabled at the Public Hearing and found above. Please note that certain headings have been re-stated to more appropriately reflect the data provided.

1. Broadcaster – Ultimate owner or ownership group for one or more conventional television signals;
2. Broadcast signals – number of television stations that provide signals to BDUs;
3. BDU – the total number of BDUs carrying at least one signal of a specific ownership group;
4. Signals received by subscribers – the total number of signals of stations within a specific ownership group distributed to BDU subscribers;
5. Annual compensation – the product of applying a fee rate to the number of eligible subscribers for a given signal. In the illustration presented this rate was $0.50 per month and aggregated by the number of signals for a given ultimate conventional television ownership group.

Financial Impact on the BDUs

The Profit before Interest and Tax (PBIT) as reported by BDUs from all services provided for the broadcast year ended August 31, 2008 was $2,085,310,000. The following demonstrates the potential impact on the PBIT of BDUs assuming the full absorption of a $0.50 compensation for value of conventional signals:

Financial impact on the Conventional Television industry

Using the aggregate financial summary of conventional television (excluding CBC) for the broadcast year 2008, the realization of this compensation revenue would change PBIT as follows:

Direct to Home Subscribers (Estimate)

Using the Direct to Home data for the broadcast year ended August 31, 2008 and an assumption of six local terrestrial signals per satellite subscriber, a further $97,164,000 would be generated. This amount is projected based on the 2,699,000 DTH subscribers reported by DTH service providers for the 2008 broadcast year. No allocation of this amount between commercial television and CBC has been estimated.

The following demonstrates the potential impact on the PBIT of DTH service providers assuming the full absorption of the compensation fee using broadcast year 2008 results:

Without passing on the carriage fee to consumers, the above projection would eliminate the PBIT for DTH services providers. Additional information is needed to accurately assess this impact, i.e. the number of signals eligible for fee compensation and the corresponding number of subscribers.

Date modified:

2009-06-30